Platinum price correction underway as strike deal edges closer
Labour negotiations at South Africa's PGM mines are edging closer to a resolution as talks mediated by a ministerial task team continue.
July platinum softened for a fifth session in a row on Wednesday to $1,433 an ounce and is down sharply from the $1,493 level less than two weeks ago over renewed hopes for an end to the strike and tensions between Russia and the Ukraine fading into the background.
South Africa and Russia combined account for close to 80% of global supply of palladium and 70% of platinum output which are mainly used to clean emissions in automobiles.
Palladium has outperformed its sister metal, with the price of June palladium trading flat on Wednesday at $837 an ounce, but not far off a three-year high. Palladium hit a record price of $865 in February 2011.
More than 70,000 workers at the world's three largest platinum and palladium producers, Anglo American Platinum (LON:AAL), Impala Platinumm (OTCMKTS:IMPUY) and Lonmin (LON:LMI), have been on strike since January 23.
Newly-installed Minister of Mineral Resources Ngoako Ramatlhodi said the team hoped to have a resolution by the end of the week while leader of the militant Amcu union Joseph Mathunjwa said the talks "went well".
More meetings with both sides are scheduled for Thursday.
The latest offer from mine management calls for a monthly increase of R800 ($75) a month every year for five years for those at the bottom of the pay scale and smaller hikes for those that earn more. The R800 equates to 16% pay increase for the first year for those earning the minimum of some R4,500 ($420) a month currently. Mathunjwa described a previous similar offer as simply a "repackaging".
The companies' have lost combined revenue of R20.9 billion (some $1.9 billion) while striking workers have lost almost $900 million in forfeited wages.
Roughly 10,000 ounces of platinum production and 5,000 ounces of palladium are lost each day the strike drags on. Even when strikers do return to work it would take up to three months to restart production.
Despite the recent softening, the strike and a stand-off between the West and Russia over Ukraine have pushed the platinum price up 4% this year, while the palladium price has surged 16% this year to three-year highs.
A huge factor boosting the the palladium price has been the launch of two new physical palladium-backed exchange traded funds in Johannesburg in late March.
Holdings in palladium-backed ETFs rose to fresh record highs of more than 85 tonnes or over 3 million ounces as at 30 May following the launch of two physical palladium funds listed in Johannesburg a few weeks after the strike kicked off. Holdings in a platinum ETFs are also at an all-time high.
Industry consultants Johnson Matthey Plc said in recent report platinum consumption will beat supply by 1.22 million ounces while the palladium shortfall will widen to 1.61 million ounces, from 371,000 ounces last year and the eighth year in a row of deficits.
That would constitute the largest market deficits ever, based on Johnson Matthey data going back to 1975 for platinum and 1980 for palladium.